CEO Power and Mergers and Acquisitions
49 Pages Posted: 6 Mar 2014 Last revised: 6 Feb 2024
Date Written: June 21, 2015
Abstract
We find CEO power in acquiring firms can explain the occurrence of both large value creation and destruction deals in M&A. Specifically, we find firms with powerful CEOs make fewer deals and the returns on those deals are less dispersed. Firms with powerful CEOs are also less likely to do all cash deals and use a larger proportion of stocks in payments. We relate this to the incentive of powerful CEOs to avoid making big salient mistakes in major firm decisions to protect them from adverse career consequences. However, we also find that firms with powerful CEOs are more reluctant to withdraw deals given negative market reactions to the announcements of the deals, which suggests that powerful CEOs do pursue deals that increase their private benefits of control while avoiding deals with high ex ante uncertainty. Our evidence offers a new perspective on M&A deals with extreme returns and CEO objectives.
Keywords: CEO Power, Mergers and Acquisitions, Large Value Creation and Destruction
JEL Classification: G34
Suggested Citation: Suggested Citation